Taiwan's Labour Pension Fund has just completed the funding for $2 billion worth of global enhanced equities and global enhanced fixed-income mandates issued to six investment managers, according to Lee Ruej-ji, vice-chairwoman of the supervisory board of the fund.
BGI picked up two mandates for global enhanced equities under both the 'Old' and 'New' system of the fund this time. Other equity mandate winners were JPMorgan and Deutsche Asset Management.
Bond manager Pimco scored two fixed-income mandates. The usual favourite Goldman Sachs Asset Management and Loomis, a newcomer to the Taiwan institutional scene, picked up mandates for enhanced fixed-income strategies.
Even as the Labour Pension Fund makes good on its previous mandate commitments, it is enhancing its focus on Taiwan equities and is preparing to roll out more mandates in this particular area.
As the domestic stock market continues to trade at a low price-to-earnings ratio of 11.22 times, the fund predicts that Taiwan equities may grow by 9% annually over the next three years. (Remember the Taiex is currently hovering at 4,591 points -- a level it has stayed close to since October 2008, though half of its peak at 9,225 points on May 19 last year.)
Janet Li, principal investment consultant at Watson Wyatt in Hong Kong, points out the 9% target will have to be met on an absolute return and unleveraged basis. The same investment restrictions will apply: derivative instruments are to be used for risk management purposes only.
Is this unrealistic in the current market environment? That is up to fund managers to debate when they weigh whether it is worthwhile bidding for the new mandates, valued at NT$30 billion ($882 million).
Provided that managers meet the fund's prerequisites and are willing to hand over a NT$200 million 'application guarantee', there will be 10 mandates up for grabs, each worth NT$3 billion.
They will be rewarded on a performance-only fee schedule. This schedule ranges from: 8 basis points for non-achievers delivering 0% of the performance target, net of costs; 10 basis points for managers reaching just over 0.5 times the marked target; 30 basis points for managers who double their returns; up to a maximum of 60 basis points for managers returning over 400% of the Labour Pension Fund's stated wishes.
Li observes a trend of home-bias among US and European investors, and Taiwanese institutions are no exception. In Taiwan, where the four major public funds are aiming to diversify their hefty portfolios, most are still far from reaching their long-term strategic allocation target.
Last year, when inflation concerns were front of mind, the fund's stated aim of taking up TIPS or socially responsible strategies was put on the back burner. Risk awareness and sustainability of yield are now the primary focus.
However, considering the fund's newly halved AUM size, the adoption of ultra-high investment targets is drawing curious stares on the island.
As at the end of 2008, the fund had total assets of NT$812 billion ($24 billion) -- NT$471 billion of which is managed under the old system of the Labour Pension Fund. NT$340 of this comes from the new Labour Pension Fund system.